Micro Econ Exam 3

what is a monopsony

a. A market structure with only one buyer of a product that has no close substitutes

1. The De Beers corporation has what kind of monopoly on the world diamond market?

a. A monopoly due to ownership of key resources

1. Which of the following is a significant difference between monopolies and competitive firms?

a. A monopoly's demand curve is the​ industry's demand​ curve, while the competitive​ firm's demand curve is perfectly elastic.

1. Comcast's monopoly on cable/internet is what kind of monopoly?

a. A natural monopoly (i.e., due to economies of scale)

1. What is a "strategy" in the context of an economic game?

a. A player's complete contingent plan for their best response to each possible action the other player(s) can make

1. Suppose that the amount of time a homeowner puts into maintaining their yard (Q) directly correlates to the value of their neighbor's property (E). In an effort to boost property values across the whole community, the homeowners' association introduces a new rule that pays homeowners in the community for time they spend maintaining their yards. This is an example of what type of policy?

a. A price instrument

1. In an oligopoly with identical products, a price set above marginal cost results in a competition between the oligopolists where they continually undercut each other's prices slightly, until the price eventually drops down to the Nash equilibrium. What is this "back-and-forth" competition of progressively lower prices called?

a. A price war

1. An externality is a cost or benefit that affects whom?

a. A third party

1. When oligopolist firms collude, they are doing what?

a. Acting as if they are jointly a monopolist

1. Which of the following would NOT result in the most efficient market outcome?

a. Allowing a (private) monopoly to operate without regulation

1. What is a duopoly?

a. An oligopoly with exactly two firms

1. The natural equilibrium outcome in a market for public goods (with no government intervention) is what?

a. An underprovision of the good (Q*p < Q*s)

1. Joe Exotic's "Greater Wynnewood Exotic Animal Park" is an example of what type of good?

a. Club good

1. The tragedy of the commons results when​ what occurs?

a. Common-pool resources are overused.

1. Club goods are often characterized by what?

a. Congestion

1. Which of the following is an example of a condition that would tend to lead to a collusive agreement (between oligopolists with identical goods) breaking down?

a. Detection of cheaters is difficult.

1. A tax that creates deadweight loss in a market is​ a...

a. Distortionary Tax

1. The​ free-rider problem arises when an individual​ does what?

a. Does not pay for a good because nonpayment does not prevent consumption

1. What is the reason that externality markets naturally fail?

a. Each individual producer or consumer only considers their own individual costs or benefits, not those to anyone else.

1. Because new firms are prevented from entering the industry in the long run due to barriers of entry, this allows monopolist firms to do what in the long run?

a. Earn positive long-run economic profits

1. What is the cause of a "natural monopoly"? (Note: A "natural monopoly" is NOT the same as "natural market power," though the two are related.)

a. Economies of scale, where large fixed costs keep new firms from entering the industry

1. Suppose that the quantity of people in a bar (Q) directly correlates to the amount of noise (E) it produces. A new bar next to your house has been producing lots of noise pollution, and the neighbors have been frequently calling the police about this negative externality. In an effort to take action, the city steps in and mandates that the bar install soundproof padding on all walls. Through which channel is this policy working to lower the amount of negative externality produced?

a. End-of-pipe treatment

1. Which of the following is NOT one of the three basic components of an economic game?

a. Firms

1. Which of the following combinations of policies would work to fix both types of externality markets?

a. Goods with positive externalities should be subsidized, while goods with negative externalities should be taxed.

1. Why is it that oligopolies are the only market structures in which firms interact strategically?

a. In a monopoly, there is only one firm, so firms by definition cannot interact. b. In a perfectly competitive market, there are so many firms that no single firm has any market power, and so no single firm's decisions impact the profits of any other firms. c. There are few enough firms in an oligopoly that each firm's decisions impact each other firm's profits, and so each oligopolist must consider each other oligopolist's actions when choosing their own.

1. What is the best solution to the market failure caused by public goods?

a. Institute a tax that forces everyone who receives the benefits to pay

1. Which of the following is NOT true about the Nash equilibrium of an economic game?

a. It always corresponds to the socially optimal outcome

1. What is the general solution to congestion for club goods?

a. Limit membership to the club via a maximum number of members

1. What is the "Golden Rule" that all firms follow to maximize profits, regardless of the market structure in which they operate?

a. Marginal Cost = Marginal Revenue

1. What is the goal of all firms, regardless of the market structure in which they operate?

a. Maximize profits

1. What is the key to finding the Nash equilibrium of an economic game?

a. Mutual best responses

1. If a monopolist firm is earning profits in the short run, what will happen in the long run?

a. New firms will want to enter the market, but will not be able to due to barriers to entry

1. Consider the market for products made from the fur of the American bison, which freely roamed the American Great Plains before the arrival of European settlers. The bison became a common-pool resource due the lack of population management, leading the bison population to the brink of extinction. Did individual hunters generally intend to hunt bison to extinction?

a. No, the resource's depletion/extinction happens due to a lack of management, REGARDLESS of the intent of the individual users.

1. Which of the following describes a market with identical (homogeneous) products, a few sellers, many buyers, and large barriers to entry?

a. Oligopoly with Identical (Homogeneous) Products

1. Choose the market structures for which the following statement is true: "The natural (unregulated) equilibrium market outcome is a market failure."

a. Only Monopolies

1. Choose the market structures for which the following statement is true: "Firms can earn positive economic profits in the long run."

a. Only Monopolies and Oligopolies with Identical Products

1. Choose the market structures for which the following statement is true: "It is possible for a natural (unregulated) market outcome to be a market failure."

a. Only Monopolies and Oligopolies with Identical Products

1. Choose the market structures for which the following statement is true: "In equilibrium, firms earn zero economic profits in the long run."

a. Only Oligopolies with Identical Products and Perfect Competitions

1. Choose the market structures for which the following statement is true: "The equilibrium market price charged by all firm(s) in the market (P*) tends to equal marginal cost (MC)."

a. Only Oligopolies with Identical Products and Perfect Competitions

1. Choose the market structures for which the following statement is true: "The natural equilibrium market outcome is efficient."

a. Only Oligopolies with Identical Products and Perfect Competitions

1. Choose the market structures for which the following statement is true: "New firms can freely enter the industry in the long run."

a. Only Perfect Competitions

1. Choose the market structures for which the following statement is true: "In equilibrium, firms earn positive economic profits in the long run."

a. Only monopolies

1. In a monopoly, which side of the market has all the market power?

a. Only the monopolist firm has market power (meaning it has "full" market power)

1. Which of the following best illustrates the tragedy of the​ commons?

a. Overfishing in public waters.

1. What is the difference between standard private costs and benefits and external costs and benefits?

a. Producers and consumers have a choice in whether they pay/receive private costs and benefits, while third parties do not have a choice in whether they pay/receive external costs and benefits

1. Food at a potluck is an example of what type of good?

a. Public Goods

1. Antitrust policy started with the​ ____________.

a. Sherman Act of 1890.

1. Game theory describes what?

a. Situations where one player's action impacts another player's well-being

1. The socially optimal outcome of an economic game is what?

a. The best outcome for ALL players

1. Which of the following is an example of an oligopoly with homogeneous products?

a. The computer hard drive market

Which of the following describes a market with no close substitute goods, exactly one seller, many buyers, and large barriers to entry?

monopoly

For the following few questions, consider the market for cigarettes, which cause the negative externality of second-hand smoke for others nearby. Assume the market is at the naturally occurring privately provided equilibrium.

next few questions

1. A firm that has a patent on a drug has what kind of monopoly?

a. A legal monopoly

1. A group of firms who decide to collude by setting anticompetitive prices or quantities is/are known as what?

a. A cartel

1. A tax that forces those who benefit from a public good to pay for it would be what kind of tax?

a. A corrective tax (i.e., a Pigouvian tax)

1. Which of the following is not a real-life example of a zero-sum​ game?

a. A free market transaction

1. According to the Coase theorem, which of the following is true regarding the initial distribution of property rights and efficiency?

a. The efficient/socially optimal outcome can be reached regardless of whether the producer/consumer causing the externality or the third party impacted by the externality has the initial property rights.

1. According to the Coase theorem, which of the following is true regarding the initial distribution of property rights and equity (that is, the distribution of surplus)?

a. The payment always benefits whichever party - the producer/consumer causing the externality or the third party impacted by the externality - owns the initial property rights.

1. A standard unregulated free market for a good with externalities ends up in what?

a. The privately provided equilibrium

1. Which of the following describes the standard unregulated free market outcome for a good with externalities?

a. The privately provided equilibrium outcome is inefficient b. The privately provided equilibrium outcome is a market failure c. The privately provided equilibrium outcome does NOT maximize total social surplus (TS) The privately provided equilibrium outcome results in deadweight loss (DWL)

1. A​ zero-sum game is when​ what is true?

a. The sum of the payoffs is zero

1. Why is it difficult to reach the socially optimal level of use for a common-pool resource?

a. There are too many users, because access is not restricted. b. No one is managing the amount used by each user.

1. What is the intent of a Pigouvian​ tax?

a. To induce producers of a negative externality to reduce production to the socially optimal level.

1. How does the price for cigarettes (P) compare to the socially optimal price?

a. Too little (P*p < P*s)

1. How does the total social surplus (TS) in the market compare to that in the socially optimal outcome?

a. Too little (TS*p < TS*s)

1. How much second-hand smoke (E) is generated compared to the socially optimal outcome?

a. Too much (E*p > E*s)

1. How many cigarettes (Q) are consumed compared to the socially optimal outcome?

a. Too much (Q*p > Q*s)

1. The Nash equilibrium outcome of an economic game is what?

a. Where all players are acting solely in their own self-interest

1. Goods that are excludable and non-rivalrous in consumption are called what?

a. club goods

1. What is the goal of an oligopolist firm?

a. maximize profits

1. Computers are an example of what type of good?

a. private goods

1. A player decides which action to choose when playing a game with mixed strategies by choosing how?

a. randomly

1. For economic profit to exist within a duopoly with homogeneous​ goods:

a. the firms would have to collude to set a price.

questions 11-21

look at study guide

questions 31-44

look at study guide

questions 53-69

look at study guide